This wasn't how it was supposed to be. When Japanese Prime Minister Shinzo Abe and his lieutenants unleashed massive monetary and fiscal stimulus in 2013, the shock therapy was meant to jump start the economy and end a decades-long battle against deflation.
More than three years on, the policy dubbed 'Abenomics' looks in its worst shape yet, and that's now spurring some to call for yet stronger efforts to reanimate the world's No. 3 economy. Kozo Yamamoto, one of the key members of Abe's brains-trust of reflationist advisers, on Wednesday called for new fiscal stimulus, fresh Bank of Japan easing and even the consideration of a tax on record corporate cash in a last-ditch effort to force them to deploy their earnings, Bloomberg reported.
At the BOJ itself, the Abenomics-backing board member Yutaka Harada on Wednesday said there's no denying the economic recovery is weak, and declined to rule out the central bank taking its benchmark interest rate deeper into negative territory later this month. The Abe administration has also given a platform for foreign advisers to advocate a delay in a scheduled 2017 sales-tax increase, something that forecasters now see as practically a done deal.
A sales-tax delay, fiscal stimulus package—which Yamamoto suggested at ¥10 trillion ($92 billion)—and potentially further BOJ action would leave Abe with a triple-hit attack against mounting evidence of a return to stagnation.
Putting such fiscal plans in motion would let Abe allude to coming steps when he hosts his Group of Seven counterparts at a summit May 26-27 in Japan.
Missing Target
Here's five areas where Abenomics has missed the target:
The yen is surging, indicating that monetary policy isn't working like it used to. The currency has risen instead of falling since the BOJ shocked markets when it introduced negative rates in January. It's up more than 10% against the dollar since the start of the year.
Stocks are sliding. The benchmark Topix index is down 14% in 2016, the fourth steepest decline in the world.
Inflation remains a long way off the BOJ's 2% target, and there's little sign of a turnaround. Companies have cut their forecasts for inflation as far out as five years from now, projecting 1.2% inflation, down from 1.4% estimated in December.
Foreign investors are heading for the exits at the fastest pace since 1998 and have offloaded $46 billion of shares this year.
Above all, economic growth remains anemic—despite a strengthening in the labor market, with employment levels up more than 1.5 million since Abe took office.
Economy Shrinking
The International Monetary Fund on Tuesday set out a vision of Japan being the world’s only advanced economy that is shrinking in 2017 due to the impact of a planned consumption tax hike, Kyodo reported.
The nation’s economy is expected to contract a real 0.1% in terms of gross domestic product in 2017, down 0.4 percentage point from an earlier estimate released in January, the Washington-based lender said in the semiannual World Economic Outlook report.
Abe faces calls to postpone raising the consumption tax rate to 10% from the current 8% next April out of concern for the planned hike’s impact on the already reeling economy.
The IMF said it expects Japan’s economy to expand this year, but the margin was slashed by 0.5 point to 0.5% compared with the January projection, according to the report.
“The projected decline in growth in Japan due to the planned consumption tax increase is more than offset by slightly stronger performance in most other advanced economies,” the report said. It forecast growth of 1.9% and 2% in 2016 and 2017, respectively, for the rich nations.
